The Economy's Other Half

How Taking Gender Seriously Transforms Macroeconomics

James Heintz

• Publisher: Agenda Publishing
• Year: 2018
• ISBN:
  9781788212083
• Topic: Social Sciences
• Subtopic: Gender Studies
• Index: Social Sciences

Choices made in macroeconomic policies – such as government spending, taxation, monetary policy and financial regulation – have distinct distributive consequences for women and men. They also shape the constraints within which efforts to advance gender equality must operate. The implications of gender dynamics for macroeconomics extends beyond consideration of distributive outcomes. The unpaid and non-market work that women perform – running a household, bringing up children – is unrecognized and uncounted in macroeconomic variables used to formulate policy. Yet the economic consequences of these unpaid activities are far-reaching: contributing to the well-being of society, affecting productive activities in the market economy and creating the foundation for the long-run sustainability of our economies.

It has long been assumed that economic growth and women's growing participation in the paid workforce would eventually take care of gender inequalities, and yet there is little evidence that faster growth will achieve this. In addition it ignores the valuable and quantifiable role that the unpaid work of women for their families contributes to the economy.

James Heintz tackles the shortcomings of macroeconomics in relation to gender dynamics and challenges the dominant methods and measurements, suggesting new ways of framing macroeconomic concepts. He concludes by considering implications for how this new way of thinking could transform policymaking in the future.

1

Gender inequality and macroeconomic policy

MACROECONOMIC POLICY AND GENDER INEQUALITY: WHAT ARE THE CONNECTIONS?

Macroeconomics claims as its domain the policies, prices and practices that affect the economy as a whole. In contrast, microeconomics primarily concerns itself with the choices individuals and businesses make. In many respects, this way of carving up the economy is artificial. Macro–micro overlaps are commonplace. Individual decisions and behaviours, taken together, affect the overall economy. Likewise, a general collapse of financial markets changes the choices people make. There are certain interventions that have broad-based impacts and have the potential to alter the general economic environment. We call these interventions macroeconomic policies.

Macroeconomic policies are typically divided into two categories: fiscal policies and monetary policies. Fiscal policies are concerned with how governments mobilize resources and how they spend the money they have. They include government spending, tax policy, and the generation of other types of public revenues. Governments are also capable of borrowing when expenditures exceed current revenues. Fiscal policies are therefore concerned with deficit financing and the management of the public debt.

Monetary policies are the remit of central banks. They affect the supply of credit and the resources available to financial institutions. They are able to influence some of the most important prices in the economy: interest rates and exchange rates. Interest rates affect the cost of borrowing and impact major economic decisions: whether to buy a house, whether to expand a business, and whether to take out a loan for a new car. Exchange rates have a huge effect on international transactions. They influence a country’s ability to compete on global markets and the cost of imported essentials, such as food and energy.

Governments and central banks implement macroeconomic policies with a number of objectives in mind. In some cases, macroeconomic policies attempt to promote economic growth. They can be used to try to insure that there is adequate demand for the goods and services an economy produces. By changing the level of demand, they have a knock-on effect on the level of employment. Because of this, one common macroeconomic policy objective is to reduce unemployment. But macroeconomic policy-makers are also concerned about prices. Reckless macroeconomic management may lead to high rates of inflation that erode living standards. Controlling inflation is frequently a central macroeconomic objective.

Macroeconomic policies work through a number of channels. One important channel is aggregate demand – the overall demand for goods and services exchanged in markets. Fiscal policies alter aggregate demand directly. Since the government is such a big player in the economy, changes in government spending affect the general level of demand. However, such spending has to be financed, most commonly through taxation. Higher taxes reduce the resources available to households and businesses and dampen demand. Because spending and taxes work in opposite directions, the impact of tax-financed public spending on overall demand may be ambiguous. But governments have another option. They can borrow to finance additional spending without raising taxes. Fiscal policies aimed at boosting demand therefore tend to rely on debt-financed expenditures.

Monetary policies also affect the overall purchasing power in the economy. They do this by influencing the resources available to financial institutions that make loans and extend credit, such as commercial banks. When the supply of credit increases, households and businesses find it easier and cheaper to borrow to finance a broad range of purchases – from new equipment to new houses. As long as people are willing to borrow and banks are able to lend, an expansion of credit will support more aggregate demand in the economy.

Fiscal policy involves the allocation of public funds to different areas of spending in the budget. It therefore determines which public goods and services will be produced and how much will be provided. For instance, fiscal policy will affect spending on education and the delivery of educational services. Education represents an investment in human beings that has a long-run impact on the productive potential of the economy. Governments also redistribute resources through fiscal policy. Households and businesses transfer money to the government in the form of taxes, and governments, in turn, transfer money to households and businesses. Low-income households may receive grants to reduce the prevalence of poverty and businesses may receive subsidies to promote certain types of investment.

Monetary and fiscal policies influence the productive capacity of the economy. Public investment in infrastructure, such as water, sanitation, electricity and roads, provides economic benefits to the population and to businesses. Through its influence on interest rates, monetary policy can encourage or discourage investment. High interest rates make it costly to borrow to expand business activity, while lower rates will tend to encourage productive investment.

Fiscal policy is typically set by specific agencies within the government, usually a Ministry of Finance or the Treasury. Budgets and tax policy are often subject to parliamentary or congressional approval. In contrast, central banks have been set up to conduct monetary policy. Central banks are typically statutory institutions, established by governments, to oversee the banking system and the money supply. Most central banks worldwide have some degree of independence from the government. Their independent status theoretically creates a barrier between the political machinations of the government and the implementation of monetary policy. The formulation of macroeconomic policy, both fiscal and monetary, is typically conducted as a technocratic exercise, with limited participation and varying degrees of transparency. This limits the direct engagement of a country’s citizenship with these areas of economic policy-making.

From this brief overview, we see that fiscal and monetary policies have large, broad-based effects on the economy as a whole. They influence the level of demand, prices, employment, productivity and the distribution of income. Macroeconomic policies are usually designed and implemented without any specific reference to gender. Because of this, it is often said that macroeconomic policies are “gender blind”. For instance, when central banks raise interest rates, perhaps in an effort to bring down inflation, they do not differentiate between men and women with respect to the policy instrument (i.e. the interest rate) or the policy objective (i.e. lower inflation). Since the conduct of macro policies is gender blind, little attention is paid to the different ways these policies affect men and women.

But gender blind does not mean gender neutral. Macroeconomic policies interact with structural features of the economy, such as the distribution of unpaid work and the segregation of men and women into different types of employment, to produce distinct outcomes for women and men (Rubery 2014). This raises the possibility that gender-blind macroeconomic policies will replicate and reinforce existing inequalities between women and men.

Take the example of labour market segregation, in which women are over-represented in some types of paid work (e.g. garment workers) and under-represented in others (e.g. taxi drivers). Different sectors of the economy, and different occupations, may be more sensitive to macroeconomic policies than others. For instance, the public sector is often an important employer of women in professional service jobs, such as teachers and nurses. The wages and salaries of government workers represent large components of overall government spending. Policies that reduce government spending – for example, in response to a high debt burden – will likely reduce the public payroll and this can have a disproportionately large effect on women’s employment. Or consider the example of a government trying to support overall economic activity during a slump by engaging in large-scale investments in physical infrastructure. These investments may involve a large number of construction jobs, a sector dominated by men. If so, the economic stimulus would be biased in favour of men’s employment.

Women and men may also have different experiences when the macroeconomic environment changes because of different responsibilities for unpaid household work. Budget cuts, restrictive credit policies, and higher interest rates will reduce demand in the economy, potentially leading to a fall in household resources when unemployment rises and incomes are squeezed (Berik & Kongar 2015). Households also utilize public services directly. If these services are reduced, families will need to adjust. One possible coping mechanism is to increase the services produced with unpaid labour in the household – childcare, meal preparation, and home maintenance, among others. For instance, cuts to medical services may mean that families with sick or disabled relatives must spend more time providing care within their own homes.

Since women perform more unpaid household work than men, the weight of adjustment will likely fall on their shoulders. In some cases, women will simply work longer hours. Increased demand for unpaid work can also constrain women’s ability to engage in paid employment. Because of the gender division of labour within the household, women and men experience economic contractions differently.

Households are not homogenous. Many have children, others do not. In some households, there are two or more people of working age, while in others a single adult takes on the responsibility of keeping things afloat. Macroeconomic shocks have different implications for different households. Children are less able to contribute to maintaining the family, they require both time and money, and therefore they tend to consume more than they produce. An economic downturn will, on average, have a more significant negative effect on families with children than on other households. When a household has two or more adults, they are more resilient when it comes to withstanding a shock because the adults are able to pool resources to manage risks. Consider two families – one with two adults, both of whom work in paid employment, and the second with only one adult. The loss of a job will be less devastating to the two-earner family compared to the family with only one adult in a paid job.

Families with children maintained by single adult women face multiple risks that leave them particularly vulnerable. The presence of children raises the costs of sustaining the household. Moreover, if the single mother does not have friends or relatives that can help out, she must be “on call” if her children get sick or need additional care. This limits her job choices. The fact that there is only one adult earner means that total household income is, on average, lower than in comparable two-earner households and, for the reasons discussed above, a single-mother family faces higher risks from economic shocks. Due to labour market segregation and outright discrimination, women earn less than men, further lowering the resources available. Child support (or child maintenance) can help, but not all mothers receive payments from the fathers of their children. Taken together, it’s not surprising that changes at the macroeconomic level will affect some households more than others, and these asymmetric consequences are gendered.

FISCAL POLICY AND GENDER INEQUALITY

When we consider how fiscal policy affects gender equality, budgets are of foremost importance. The government’s budget represents a plan of how much will be spent on what, and how the government will pay for it all. Budgetary decisions affect the allocation of public expenditures and reflect government priorities. The state may cut support for the poor in favour of military spending, or reduce foreign aid in order to invest more at home. The allocation of public spending among competing uses has a direct effect on gender equality because changes in government expenditure affect women’s lives differently than men’s.

Consider the findings of a study that examined the effects of changes in government healthcare spending on maternal mortality rates in 24 European Union countries over the period 1981–2010. Maternal mortality is a leading cause of death for women in their 20s and 30s in many countries. Government expenditures are an important source of healthcare financing and can improve access to services that reduce the risk of women dying during pregnancy, childbirth and shortly after delivery.¹ The research found that a 1 per cent decline in government health spending was associated with a more than 10 per cent increase in maternal mortality (Maruthappu et al. 2014). This indicates that changes in a general category of expenditure, such as health spending, can have gender-specific effects.

Spending on basic infrastructure provides another example of how public spending affects women and men differently. In many low-income countries, women spend a significant amount of time collecting and carrying water. Access to a water tap can transform women’s lives by dramatically cutting the time needed to supply water to their households. Decisions regarding the allocation of funds to basic infrastructure projects, specifically access to water and sanitation facilities, will affect women’s daily lives differently than men’s (Bibler & Zuckerman 2013).

This is not to say that cuts to government health expenditures will have little effect on men’s overall health status. Or that men do not benefit from access to basic water and sanitation facilities. Budget cuts are not automatically biased against women; men can be hurt as well. However, the critical point to recognize is that changes to budget allocations will affect women and men differently, and we have no way of knowing about these impacts unless these distributive dynamics are specifically analyzed and taken into account when formulating fiscal policies.

Government budgets represent the one area of macroeconomics in which significant inroads have been made with regard to documenting the effects of fiscal policy choices on women and men (Elson 1998). This type of analysis is carried out using an approach called “gender responsive budgeting”. Gender responsive budgeting assesses the impact of budget choices on women and men. It involves analyzing the allocation of public spending, the effects of tax policy, and the beneficiaries of public service delivery and public investments to identify gender-specific impacts of fiscal policy. Gender responsive budgeting is now a widely recognized approach to evaluate the implementation of government commitments for improving gender equality and closing outcome gaps between women and men.

A 2016 assessment of gender responsive budgeting initiatives by the International Monetary Fund found that, at the time, over 80 countries around the world had undertaken some form of gender assessment with regard to budget policies (Stotsky 2016). One step in analyzing budgets from a gender perspective involves examining the allocation of public spending and the direct effect this may have on women and girls relative to men and boys. For instance, are educational expenditures distributed in such a way as to support girls’ educational attainment to the same extent as boys’? Looking at the allocation of spending is critical, but ideally, gender responsive budgeting should go further. It should not only analyze how the money is divided, but also look at the actual delivery of public services and investments and who benefits from them.

Let’s return to the case of public health expenditures by way of example. Imagine that we are analyzing proposed cuts to health expenditures. We would want to analyze which areas of spending would be cut and what the gender specific consequences may be. Will the cuts mean large lay-offs of nurses who are disproportionately women? Will spending on prenatal and postnatal care be reduced? But we should not stop there. We would also want to know to what extent the spending cuts threaten actual service delivery and who bears the burden of adjusting to a curtailed supply of public services and investments. Suppose lower expenditures result in the early discharge of patients from public hospitals. These patients, when they return home, will likely require care from family members – care they would have received in the hospital. A likely scenario is that female family members will take on this additional care work. This is a real cost to the women involved and an important consequence of budget decisions. Gender responsive budgeting, to the extent possible, should take these outcomes into consideration.

Spending is not the only aspect of fiscal policy that matters. Taxes are also important. Although many approaches to gender responsive budgeting focus exclusively on public expenditures, tax policy may also have different consequences for women and men (Grown & Valodia 2010). Consider the work of the Women’s Budget Group, based in the UK and established, following the 2008 financial crisis, to analyze the gender specific consequences of Britain’s fiscal policy, particularly the austerity policies that were proposed in the wake of the crisis. The Women’s Budget Group has pointed out that tax cuts for individuals with high incomes contain hidden gender biases.² Because of inequalities in the labour market, women earn, on average, less than men, and the glass ceiling limits the number of women in high-paying professional jobs. Therefore, the benefits of proposed tax giveaways for the country’s high earners will disproportionately accrue to men. This could further widen the after-tax earnings gap between men and women.

Government spending must ...

Table of contents

• Cover
• Series Page
• Title Page
• Copyright Page
• Contents
• Foreword
• Introduction
• 1. Gender Inequality and Macroeconomic Policy
• 2. The Mis-Measured Economy: Incorporating Feminist Ideas Into Macroeconomic Accounting
• 3. Reimagining Macro: Gender and Economics in the Long Run
• 4. Revamping Macroeconomics So That People Count
• References
• Index